Banks would be weakened if interest on loans waived off, Centre tells SC

The Centre on Wednesday told the Supreme Court that the banks, which formed a vital chunk of economy, would get weakened if there was a straightaway writing off interests on loan during the six-month moratorium, announced due to Covid-19 pandemic.

Solicitor General Tushar Mehta, appearing for the Union government, submitted before a three-judge bench presided over by Justice Ashok Bhushan that it would be required to have strong banks to start reviving economy, and to reconstruct stressed assets.

Read: Finance Minister Nirmala Sitharaman to review loan revamp plan with lenders

His submissions came amid a strong contention made by the real estate, power sector, tourism, MSMEs and other industries against levying of any interest during moratorium due to shrinking of income since March.

Mehta, for his part, said, "There were some options available for reviving the economy. One was to write off interest. Second was a more holistic option in which the first step would be to ease the burden of repayment of loans. The next priority is the revival of sectors so that economy gets moving, restructuring of stressed assets and then the operations of banking sectors."

Mehta said there was a range of banks dealing with a variety of loans and borrowers. The majority of the economy ran on not large corporates but on smaller businesses.

Also Read: Loan moratorium extendable up to two years, Centre, RBI tell Supreme Court

The top court is likely to resume its hearing on Thursday on a batch of petitions filed by Gajendra Sharma and others, seeking a direction to the Centre and the RBI to waive off interests on loan and interest on interest during the moratorium.

Textile mills association led by advocate Ashish Virmani sought a status quo as moratorium period expired on August 31.

Senior advocate Kapil Sibal, appearing for construction companies association, sought extension of deadline of August 31, as the sector saw a negative growth of 50%. He said the power under the Disaster Management Act must be exercised to grant relief.

Other counsel also contended the RBI circulars issued to ease the burden did not achieve their desired objectives as the moratorium just postponed it. Senior advocate C A Sundaram said the interest rate must be brought down, at least, to the level at which depositors were paid.